Workers rights (chapter 15)

• Employment at will governs the employment relation • Limits (FLSA): Over the years the government has passed laws that have limited the rights of employers in this relation.

• Protections: Over the years the government has also passed laws that provide protection to employees. • There has also been also legislation that has created exceptions: Union negotiated contracts; EEO

Public policy and safety (Chapter 16)

• With perfect information, the law of supply and demand would produce the “right” amount of protection from dangerous goods and jobs.

• Since there is not perfect information and products and jobs are growing in complexity we accept government intervention to compel businesses to take precautions.

• Have we strike the right balance.

Two approaches

• Incentives: – Fear of litigation (tort system) – Fear of increase insurance cost (workers compensation) • Direct regulation – Consumer protection agencies such as the FDA – Workers safety agencies such as the OSHA

Consumer safety

• Common law: – tort law (a private wrong or injury, other than a breach of contract.) – Breach of contract when warranties do to pan out • Agencies that regulate, monitor, and enforce

Consumer safety: tort law

• Lawsuits looking for compensatory and punitive damages • Evolution of standards: • From caveat emptor

to

reasonable man

to

strict liability • From Privity (only direct contractual relationship)

to to

total liability • Caveat emptor (let the buyer be aware) joint and several liability and

to

class action lawsuits • From assumption of risk and contributory negligence

to

having to pay even when businesses take safeguards.

Is this the right balance?

• Crucial supportive argument: Following the logic of allocative efficiency we are all better off even though a few businesses get hurt • Arguments against: the system needs reform to solve the following problems: – Incentives for frivolous lawsuits • Jackpot verdicts • Losers do not pay for winners’ fees • Lawyers get paid through contingency instead of hourly fees – It creates moral hazard: Distorts the incentives for people to be careful with products – Puts US businesses in a Competitive disadvantage with the rest of the world – The cost of liability insurance has gone out of hand

Consumer protection safety agencies

• Due to the incomplete protection offered by tort law, consumer activists, public interest groups, and other concerned parties have pushed also for direct government intervention • Agencies: Food and drug administration (FDA), Consumer product safety commission (CDC).

• Pitfalls: potential over-regulation.

Workers protection

• Workers compensation – Common law was abandoned for regulations demanding businesses to have workers compensation – Creates an incentive for companies to take care of safety because they have to pay workers insurance to cover for medical expenses and compensation for lost wages.

– Creates moral hazard?

• Direct regulation (OSHA) – Rules of protection in the workplace. (over-regulation?) – Connection to public tragedies.

Some cut and paste from recent reports in NPR August 24, 2005 (On point): In a personal injury lawsuit over Merck's one-time wonder-drug,

Vioxx

, a jury last week delivered a quarter billion-dollar verdict for Carol Ernst in her husband's death -- blaming Merck for selling a drug that had serious heart risks. March 6, 2006 (All things considered): In a packed Texas courtroom last year, a federal judge accused doctors and lawyers of legal and medical fraud. “A golfer is more likely to hit a hole-in-one than an occupational medicine specialist is to find a single case of both silicosis and asbestosis. N&M [a screening company] parked a van in some parking lots and found over 4,000 such cases.”

Judge Jack

Contact Lens Solution Linked to Infections (

April 10, 2006, NPR): Bausch & Lomb has temporarily suspended shipments of its ReNu with MoistureLoc contact lens solution, which federal health officials have linked to a fungal eye infection that can cause temporary blindness.

The Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC) are investigating 109 recent reports of potentially serious eye infections. Of the 30 fully investigated cases, most were associated with Bausch & Lomb's ReNu brand products. The government agencies are reminding soft contact lens wearers to keep their hands clean when handling lenses, and follow lens care guidelines.